Essays on the links between education, ability, and income

This dissertation focuses on various aspects of the relationship between education and ability, paying particular attention to how the relationship may differ between races. Education and ability are important determinants of income, but the role they play differs by race. I focus on three questions. First, how does parental education affect child education? Second, why do black and white individuals of the same ability level choose different levels of education, and what impact does this have on wages? Finally, what effects do preferential college admission policies have on wages of college graduates? The goal of the first chapter is to determine whether a mother's education level directly affects her child's education level, or whether the correlation in education levels can be attributed to other factors common to both the mother and child. I find that controlling for ability of both parent and child, additional maternal education has little effect on child education. For mothers with low levels of education I can not rule out a direct link between education levels, although I do produce estimates that are smaller than much of the current literature. In the second chapter I develop a model that explains why, conditional on ability, blacks get more education then whites and yet have lower average wages. I then test the model empirically using two separate data sets. The results in general support the model. The final chapter examines the effects of preferential college admission policies on labor market outcomes. There is little research linking school admission policies to labor market outcomes. Treating a school's selectivity as a signal of ability for its graduates, I show that rational employers will in effect undo preferential admission. This is because preferential admission both lowers the expectation and increases the variance of ability for preferred group. Using the Baccalaureate and Beyond Longitudinal Study of 1993 I construct a measure of preferential admission and empirically test the model. I find that for black graduates there is a significant decrease in wages due to affirmative action. This loss is similar in magnitude to the gain in wages related to school quality.